Midwestern Refiners Seek Canadian Oil To Expand Output

Cheap crude from Canada and North Dakota is reducing the U.S. Midwest’s reliance on Gulf coast fossil fuels, according to a new report by Reuters.

Figures from last year say the Midwest’s refining capacity at 3.9 million barrels per day – that’s the highest volume on record. The surge in production comes from new sources of crude from the north, data show.

Marathon Petroleum Corp, Phillips 66, British Petroleum, and other refiners in the region have invested in special equipment to make Canada’s highly viscous crude suitable for current refineries.

“Ten years ago, we were 1 million barrels per day short on products, with the Gulf Coast supplying the product. Today, the midcontinent is flush with products,” Marathon Petroleum Chief Executive Gary Heminger told Reuters at the company headquarters in Ohio.

Despite the growth in output, declining gasoline demand could make it difficult for Midwestern suppliers to find customers as their capacity grows. But the refiners are confident they can tap into new markets to turn a profit.

“The Midwest is well positioned to supply its region and parts of southern Canada, and will even have excess supplies to send to the East Coast. It’s in a good spot,” Mark Routt, at KBC Advanced Technologies said.

Refining margins jumped after Hurricane Harvey hit Houston, due to the sudden disruptions of a significant chunk of the world’s refining capacity. The outages highlighted how tight global refining supply actually is—with limited spare capacity, there’s not much room for error.

Refining margins soared and demand for gasoline spiked, incentivizing refiners around the globe to ramp up operations to fill the void left by the flooded refineries in Texas. The result has been a windfall for refiners not impacted by Harvey. For example, PBF Energy, a company with refining assets in the U.S. Northeast and Midwest, has seen its share price jump by more than 25 percent since the storm hit the Gulf Coast.